ARTICLE 1189: SUSPENSIVE CONDITION; LOST
OF THE THING
1. OSMENA III VS. SSS
ARTICLE 1191: RESCISSION OF RECIPROCAL
OBLIGATIONS
1. VILLAMAR VS. MANGAOIL
FACTS:
 Villamar is the registered owner of a 3.6080
hectares parcel of land [hereinafter referred as the
subject property] in San Francisco, Manuel,
Isabela covered by Transfer Certificate of Title
(TCT) No. T-92958-A. On March 30, 1998, she
entered into an Agreement with Mangaoil for the
purchase and sale of said parcel of land, under the
following terms and conditions:
1. The price of the land is ONE HUNDRED AND
EIGHTY THOUSAND (180,000.00) PESOS per hectare
but only the 3.5000 hec. shall be paid and the rest shall be
given free, so that the total purchase or selling price shall
be [P]630,000.00 only;
2. ONE HUNDRED EIGHTY FIVE THOUSAND
(185,000.00) PESOS of the total price was already
received on March 27, 1998 for payment of the loan
secured by the certificate of title covering the land in favor
of the Rural Bank of Cauayan, San Manuel Branch, San
Manuel, Isabela [Rural Bank of Cauayan], in order that
the certificate of title thereof be withdrawn and released
from the said bank, and the rest shall be for the payment
of the mortgag[e]s in favor of Romeo Lacaden and
Florante Parangan;
3. After the release of the certificate of title covering the
land subject-matter of this agreement, the necessary deed
of absolute sale in favor of the PARTY OF THE
SECOND PART shall be executed and the transfer be
immediately effected so that the latter can apply for a loan
from any lending institution using the corresponding
certificate of title as collateral therefor, and the proceeds
of the loan, whatever be the amount, be given to the
PARTY OF THE FIRST PART;
4. Whatever balance left from the agreed purchase price
of the land subject matter hereof after deducting the
proceed of the loan and the [P]185,000.00 already
received as above-mentioned, the PARTY OF THE
SECOND PART shall pay unto the PARTY OF THE
FIRST PART not later than June 30, 1998 and thereafter
the parties shall be released of any obligations for and
against each other; xxx
 On April 1, 1998, the parties executed a Deed of
Absolute Sale whereby Villamar (then Estelita
Bernabe) transferred the subject parcel of land to
Mangaoil for and in consideration of
[P]150,000.00.
 In a letter dated September 18, 1998, Mangaoil
informed Villamar that he was backing out from
the sale agreed upon giving as one of the reasons
therefor:
3. That the area is not yet fully cleared by incumbrances
as there are tenants who are not willing to vacate the land
without giving them back the amount that they mortgaged
the land.
 Mangaoil demanded refund of his [P]185,000.00
down payment. Reiterating said demand in
another letter dated April 29, 1999, the same,
however, was unheeded.[7] x x x
 On January 28, 2002, the respondent filed before
the RTC a complaint[8] for rescission of contract
against the petitioner. In the said complaint, the
respondent sought the return of P185,000.00
which he paid to the petitioner, payment of
interests thereon to be computed from March 27,
1998 until the suit's termination, and the award of
damages, costs and P20,000.00 attorney's fees.
 In the respondents answer to the complaint, she
averred that she had complied with her
obligations to the respondent. Specifically, she
claimed having caused the release of TCT No. T-
92958-A by the Rural Bank of Cauayan and its
delivery to a certain Atty. Pedro C. Antonio (Atty.
Antonio). The petitioner alleged that Atty.
Antonio was commissioned to facilitate the
transfer of the said title in the respondent's name.
The petitioner likewise insisted that it was the
respondent who unceremoniously withdrew from
their agreement for reasons only the latter knew.
ISSUE: WHETHER THE FAILURE OF PETITIONER-
SELLER TO DELIVER THE CERTIFICATE OF TITLE
OVER THE PROPERTY TO RESPONDENT-BUYER
IS A BREACH OF OBLIGATION IN A CONTRACT
OF SALE OF REAL PROPERTY THAT WOULD
WARRANT RESCISSION OF THE CONTRACT;
RULING
YES.
The RTC and the CA both found that the petitioner failed
to comply with her obligations to deliver to the respondent
both the possession of the subject property and the
certificate of title covering the same.
Although Articles 1458, 1495 and 1498 of the NCC and
case law do not generally require the seller to deliver to
the buyer the physical possession of the property subject
of a contract of sale and the certificate of title covering the
same, the agreement entered into by the petitioner and the
respondent provides otherwise. However, the terms of the
agreement cannot be considered as violative of law,
morals, good customs, public order, or public policy,
hence, valid.
Notwithstanding the absence of stipulations in the
agreement and absolute deed of sale entered into by
Villamar and Mangaoil expressly indicating the
consequences of the former's failure to deliver the
physical possession of the subject property and the
certificate of title covering the same, the latter is entitled
to demand for the rescission of their contract pursuant to
Article 1191 of the NCC.
We note that the agreement entered into by the petitioner
and the respondent only contains three items specifying
the parties' undertakings. In item no. 5, the parties
consented to abide with all the terms and conditions set
forth in this agreement and never violate the same.[28]
Article 1191 of the NCC is clear that the power to rescind
obligations is implied in reciprocal ones, in case one of
the obligors should not comply with what is incumbent
upon him. The respondent cannot be deprived of his right
to demand for rescission in view of the petitioners failure
to abide with item nos. 2 and 3 of the agreement. This
remains true notwithstanding the absence of express
stipulations in the agreement indicating the consequences
of breaches which the parties may commit. To hold
otherwise would render Article 1191 of the NCC as
useless.
In the case at bar, the RTC and the CA found that the
petitioner failed to deliver to the respondent the
possession of the subject property due to the continued
presence and occupation of Parangan and Lacaden. We
find no ample reason to reverse the said findings.
Considered in the light of either the agreement entered
into by the parties or the pertinent provisions of law, the
petitioner failed in her undertaking to deliver the subject
property to the respondent.
2. AYSON-SIMON VS. ADAMOS
FACTS:
 On December 13, 1943, Nicolas Adamos and
Vicente Feria, defendants-appellants herein,
purchased two lots from Porciuncula.
 Sometime thereafter, the successors-in-interest of
the latter filed Case for annulment of the sale and
the cancellation of Transfer Certificate of Title
No. 69475, which had been issued to defendants-
appellants by virtue of the disputed sale.
 The Court rendered a Decision annulling the sale,
cancelling TCT 69475, and authorizing the
issuance of a new title in favor of Porciuncula's
successors-in-interest. The said judgment was
affirmed by the Appellate Court and had attained
finality.
 In the meantime, on May 29, 1946, during the
pendency of the above-mentioned case,
defendants-appellants sold to GENEROSA
Ayson Simon, plaintiff-appellee herein, the two
lots in question.
 Due to the failure of defendants-appellants to
comply with their commitment to have the
subdivision plan of the lots approved and to
deliver the titles and possession to GENEROSA,
the latter filed suit for specific performance on
September 4, 1963.
 However, since execution of the foregoing Order
was rendered impossible because of the judgment
in the previous Case, which earlier declared the
sale of the lots in question by Juan Porciuncula to
defendants-appellants to be null and void,
GENEROSA filed, on August 16, 1968, another
suit in the Court of First Instance of Manila (Civil
Case No. 73942) for rescission of the sale with
damages.
 Respondents contend that Generosa’s right to
rescind has prescribed and that his earlier action
for specific performance bars him from filing an
action for rescission.
ISSUE:
1. W/N the petitioner’s action for specific performance
bars him from filing an action for rescission
2. W/N the petitioner’s right to file an action for
prescription has prescribed
RULING:
1. NO. The rule that the injured party can only choose
between fulfillment and rescission of the obligation, and
cannot have both, applies when the obligation is possible
of fulfillment. If, as in this case, the fulfillment has
become impossible, Article 1191 allows the injured party
to seek rescission even after he has chosen fulfillment.
True it is that in Civil Case No. 7275 the Court already
rendered a Decision in favor of plaintiff, but since
defendants cannot fulfill their obligation to deliver the
titles to and possession of the lots to plaintiff, the portion
of the decision requiring them to fulfill their obligations
is without force and effect. Only that portion relative to
the payment of damages remains in the dispositive part of
the decision, since in either case (fulfillment or rescission)
defendants may be required to pay damages.
2. NO. The cause of action to claim rescission arises when
the fulfillment of the obligation became impossible when
the court rendered a decision ordering the respondents to
fulfill their obligation through specific performance.
The action for rescission must be commenced within four
years from that date, May 3, 1967. Since the complaint for
rescission was filed on August 16, 1968, the four-year
period within which the action must be commenced had
not expired.
3. MAGLASANG VS NORTHWESTERN
UNIVERSITY
FACTS:
In compliance with the CHED’s requirement before a
school could offer maritime transportation programs, on
June 10, 2004, Northwestern University (Northwestern),
respondent, engaged the services of GL enterprises,
petitioner, to install a new Integrated Bridge System or
IBS. The parties executed two contracts. Two months
after the execution of the contracts, GL Enterprises started
delivering materials. However, when they were installing
the components, Northwestern halted the operations. GL
enterprises requested for an explanation. Northwestern
explained that the stoppage was because the materials and
equipment were substandard. It explained that the
components (1) were old; (2) did not have manual and
warranty certificates; (3) contained indications of being
reconditioned machines; (4) did not meet with CHED and
IMO standards.GL enterprises file a complaint for breach
of contract. The RTC rendered a decision that both parties
are at fault. However, the CA, found that GL enterprises
was the only at fault, for delivering defective equipment
that materially and substantially breached the contracts.
Applying Article 1191 of the Civil Code, the CA declared
the rescission of the contracts.
ISSUE:
Whether the CA gravely erred in (1) finding substantial
breach on the part of GL enterprises.
HELD:
The Supreme Court said that, the CA correctly applied
Article 1191, which provides thus: The power to rescind
obligations is implied in reciprocal ones, in case of the
obligors should not comply with what is incumbent upon
him. The injured party may choose between the
fulfillment and the rescission of the obligation, with the
payment of damages in either case. He may also seek
rescission, even after he has chosen fulfillment, if the
rescission becomes impossible. The court shall decree the
rescission, unless there be just cause authorizing the
fixing of a period. The Supreme Court said that the two
contracts require substantial breach. Then, it went also to
cite the definition, in the case of Cannu v. Galang, that
substantial breach are fundamental breaches that defeat
the object of the parties entering into an agreement, since
the law is not concerned with trifles. In the case at hand,
it was incumbent upon GL enterprises to supply
components that would create an IBS that would
effectively facilitate the learning of the students.
However, it miserably failed it meetings its responsibility.
It supplied substandard equipment when it delivered
components (1) were old; (2) did not have manual and
warranty certificates; (3) contained indications of being
reconditioned machines; (4) did not meet with CHED and
IMO standards. Also, GL enterprises did not also refute
that it delivered defective equipment. Evidently, the
materials were not likely to pass the CHED and IMO
standards.
4. MILA A. REYES VS VICTORIA T. TUPARAN
FACTS:
 On September 10, 1992, Mila A.
Reyes (petitioner) filed a complaint for
Rescission of Contract with Damages against
Victoria T. Tuparan (respondent) before the
RTC. In her Complaint, petitioner alleged,
among others, that she was the registered owner
of a 1,274 square meter residential and
commercial lot located in
Karuhatan, Valenzuela City. (here she has a 3-
storey building known as RBJ and she runs a
drugstore and cosmetics store).
 In December 1989, respondent leased from
petitioner a space on the ground floor of
the RBJ Building for her pawnshop business for
a monthly rental of ₱4,000.00. A close friendship
developed between the two which led to the
respondent investing thousands of pesos in
petitioners financing/lending business.
 On June 20, 1988, petitioner mortgaged the
subject real properties to the Farmers Savings
Bank and Loan Bank, Inc. (FSL Bank) to secure
a loan of ₱2,000,000.00 payable in installments.
 On November 15, 1990, petitioners outstanding
account on the mortgage reached ₱2,278,078.13.
Petitioner then decided to sell her real properties
for at least ₱6,500,000.00 so she could liquidate
her bank loan and finance her businesses.
 As a gesture of friendship, respondent verbally
offered to conditionally buy petitioners real
properties for ₱4,200,000.00 payable on
installment basis without interest and to assume
the bank loan.
 After petitioners verbal acceptance of all the
conditions/concessions, both parties worked
together to obtain FSL Banks approval for
respondent to assume her (petitioners)
outstanding bank account. The assumption would
be part of respondents purchase price for
petitioners mortgaged real properties.
 FSL Bank approved their proposal on the
condition that petitioner would sign or remain as
co-maker for the mortgage obligation assumed by
respondent.
 The parties and FSL Bank executed the
corresponding Deed of Conditional Sale of Real
Properties with Assumption of Mortgage. Due to
their close personal friendship and business
relationship, both parties chose not to reduce into
writing the other terms of their agreement.
 Respondent, however, defaulted in the payment
of her obligations on their due dates. Instead of
paying the amounts due in lump sum on their
respective maturity dates, respondent paid
petitioner in small amounts from time to time. To
compensate for her delayed payments,
respondent agreed to pay petitioner an interest of
6% a month.
 Petitioner further averred that despite her success
in finding a prospective buyer for the subject real
properties within the 3-month period agreed
upon, respondent reneged on her promise to allow
the cancellation of their deed of conditional sale.
Instead, respondent became interested in owning
the subject real properties and even wanted to
convert the entire property into a modern
commercial complex.
 Then, respondent had taken possession of the
subject real properties and had been continuously
collecting and receiving monthly rental income
from the tenants of the buildings and vendors of
the sidewalk fronting the RBJ building without
sharing it with petitioner.
 On September 2, 1992, respondent offered the
amount of ₱751,000.00 only payable
on September 7, 1992, as full payment of the
purchase price of the subject real properties and
demanded the simultaneous execution of the
corresponding deed of absolute sale.
 The CA agreed with the RTC that the contract
entered into by the parties is a contract to sell but
ruled that the remedy of rescission could not
apply because the respondents failure to pay the
petitioner the balance of the purchase price in the
total amount of ₱805,000.00 was not a breach of
contract, but merely an event that prevented the
seller (petitioner) from conveying title to the
purchaser (respondent).
 It reasoned that out of the total purchase price of
the subject property in the amount of
₱4,200,000.00, respondents remaining unpaid
balance was only ₱805,000.00. Since respondent
had already paid a substantial amount of the
purchase price, it was but right and just to allow
her to pay the unpaid balance of the purchase
price plus interest.
RULING:
The Court agrees with the ruling of the courts below that
the subject Deed of Conditional Sale with Assumption of
Mortgage entered into by and among the two parties and
FSL Bank on November 26, 1990 is a contract to sell and
not a contract of sale.
Based on the above provisions, the title and ownership of
the subject properties remains with the petitioner until the
respondent fully pays the balance of the purchase price
and the assumed mortgage obligation.
Accordingly, the petitioners obligation to sell the subject
properties becomes demandable only upon the happening
of the positive suspensive condition, which is the
respondents full payment of the purchase price.
Respondents failure to pay in full the purchase price is not
the breach of contract contemplated under Article 1191 of
the New Civil Code but rather just an event that prevents
the petitioner from being bound to convey title to the
respondent.
The breach contemplated in Article 1191 of the New
Civil Code is the obligors failure to comply with an
obligation already extant, not a failure of a condition
to render binding that obligation.
Thus, the Court fully agrees with the CA when it resolved:
Considering, however, that the Deed of Conditional Sale
was not cancelled by Vendor Reyes (petitioner) and that
out of the total purchase price of the subject property in
the amount of ₱4,200,000.00, the remaining unpaid
balance of Tuparan (respondent) is only ₱805,000.00, a
substantial amount of the purchase price has already been
paid. It is only right and just to allow Tuparan to pay the
said unpaid balance of the purchase price to Reyes.
Granting that a rescission can be permitted under
Article 1191, the Court still cannot allow it for the
reason that, considering the circumstances, there was
only a slight or casual breach in the fulfillment of the
obligation.
Unless the parties stipulated it, rescission is allowed
only when the breach of the contract is substantial and
fundamental to the fulfillment of the obligation.
Whether the breach is slight or substantial is largely
determined by the attendant circumstances.
Considering that out of the total purchase price of
₱4,200,000.00, respondent has already paid the
substantial amount of ₱3,400,000.00, more or less,
leaving an unpaid balance of only ₱805,000.00, it is right
and just to allow her to settle, within a reasonable period
of time, the balance of the unpaid purchase price.
The Court agrees with the courts below that the
respondent showed her sincerity and willingness to
comply with her obligation when she offered to pay the
petitioner the amount of ₱751,000.00.
5. PAGTALUNAN VS. DELA CRUZ VDA. DE
MANZANO
FACTS:
 Patricio Pagtalunan (Patricio), petitioners
stepfather and predecessor-in-interest, entered
into a Contract to Sell with respondent, wife of
Patricios former mechanic, Teodoro Manzano,
whereby the former agreed to sell, and the latter
to buy a house and lot.
 It was also stipulated in the contract that
respondent could immediately occupy the house
and lot; that in case of default in the payment of
any of the installments for 90 days after its due
date, the contract would be automatically
rescinded without need of judicial declaration,
and that all payments made and all improvements
done on the premises by respondent would be
considered as rentals for the use and occupation
of the property or payment for damages suffered,
and respondent was obliged to peacefully vacate
the premises and deliver the possession thereof to
the vendor.
 Petitioner claimed that respondent paid
only P12,950. She allegedly stopped paying after
December 1979 without any justification or
explanation.
 Lastly, petitioner asserted that when respondent
ceased paying her installments, her status of
buyer was automatically transformed to that of a
lessee. Therefore, she continued to possess the
property by mere tolerance of Patricio and,
subsequently, of petitioner.
 On the other hand, respondent alleged that she
paid her monthly installments religiously, until
sometime in 1980 when Patricio changed his
mind and offered to refund all her payments
provided she would surrender the house. She
refused. Patricio then started harassing her and
began demolishing the house portion by portion.
 Respondent admitted that she failed to pay some
installments after December 1979, but that she
resumed paying in 1980 until her balance
dwindled to P5,650. She claimed that despite
several months of delay in payment, Patricio
never sued for ejectment and even accepted her
late payments.
 Respondent did not deny that she still owed
Patricio P5,650, but claimed that she did not
resume paying her monthly installment because
of the unlawful acts committed by Patricio, as
well as the filing of the ejectment case against
her.
 Patricio and his wife died on September 17,
1992 and on October 17, 1994, respectively.
Petitioner became their sole successor-in-interest
pursuant to a waiver by the other heirs. On March
5, 1997, respondent received a letter from
petitioner’s counsel dated February 24,
1997 demanding that she vacate the premises
within five days on the ground that her possession
had become unlawful. Respondent ignored the
demand.
 Then, petitioner filed a Complaint for unlawful
detainer against respondent.
  On December 22, 1998, the MTC rendered a
decision in favor of petitioner. It stated that
although the Contract to Sell provides for a
rescission of the agreement upon failure of the
vendee to pay any installment, what the contract
actually allows is properly termed a resolution
under Art. 1191 of the Civil Code.
 Thereafter, according to the RTC, the agreement
could not be automatically rescinded since there
was delivery to the buyer. A judicial
determination of rescission must be secured by
petitioner as a condition precedent to convert the
possession de facto of respondent from lawful to
unlawful.
 The CA found that the parties, as well as the MTC
and RTC failed to advert to and to apply Republic
Act (R.A.) No. 6552, more commonly referred to
as the Maceda Law, which is a special law
enacted in 1972 to protect buyers of real estate on
installment payments against onerous and
oppressive conditions.
 The CA held that the Contract to Sell was not
validly cancelled or rescinded under Sec. 3 (b) of
R.A. No. 6552, and recognized respondents right
to continue occupying unmolested the property
subject of the contract to sell.
ISSUE:
W/N the requirements provided under Sec. 3 (b) of RA
6552 have been met
RULING:
NO. Sec. 3(b) of RA 6552 provides:
(b) If the contract is cancelled, the seller shall
refund to the buyer the cash surrender value of the
payments on the property equivalent to fifty percent of
the total payments made and, after five years of
installments, an additional five percent every year but not
to exceed ninety percent of the total payments
made: Provided, That the actual cancellation of the
contract shall take place after thirty days from receipt
by the buyer of the notice of cancellation or the
demand for rescission of the contract by a notarial act
and upon full payment of the cash surrender value to
the buyer
R.A. No. 6552, otherwise known as the Realty Installment
Buyer Protection Act, recognizes in conditional sales of
all kinds of real estate (industrial, commercial,
residential) the right of the seller to cancel the contract
upon non-payment of an installment by the buyer, which
is simply an event that prevents the obligation of the
vendor to convey title from acquiring binding force.
The Court agrees with petitioner that the cancellation of
the Contract to Sell may be done outside the court
particularly when the buyer agrees to such cancellation.
However, the cancellation of the contract by the seller
must be in accordance with Sec. 3 (b) of R.A. No. 6552,
which requires a notarial act of rescission and the refund
to the buyer of the full payment of the cash surrender
value of the payments on the property.
Actual cancellation of the contract takes place after 30
days from receipt by the buyer of the notice of
cancellation or the demand for rescission of the contract
by a notarial act and upon full payment of the cash
surrender value to the buyer.
Based on the records of the case, the Contract to Sell was
not validly cancelled or rescinded under Sec. 3 (b) of R.A.
No. 6552. First, Patricio, the vendor in the Contract to
Sell, died on September 17, 1992 without canceling the
Contract to Sell. Second, petitioner also failed to cancel
the Contract to Sell in accordance with law.
Petitioner contends that he has complied with the
requirements of cancellation under Sec. 3 (b) of R.A. No.
6552. He asserts that his demand letter dated February 24,
1997 should be considered as the notice of cancellation or
demand for rescission by notarial act and that the cash
surrender value of the payments on the property has been
applied to rentals for the use of the house and lot after
respondent stopped payment after January 1980.
The Court, however, finds that the letter a mere formal
demand upon the respondents.
Clearly, the demand letter is not the same as the notice of
cancellation or demand for rescission by a notarial
act required by R.A No. 6552.
In addition, Sec. 3 (b) of R.A. No. 6552 requires refund
of the cash surrender value of the payments on the
property to the buyer before cancellation of the contract.
The provision does not provide a different requirement for
contracts to sell which allow possession of the property
by the buyer upon execution of the contract like the
instant case. Hence, petitioner cannot insist on
compliance with the requirement by assuming that the
cash surrender value payable to the buyer had been
applied to rentals of the property after respondent failed
to pay the installments due.
6. FABRIGAS VS SAN FRANCISCO DEL MONTE
INC.
FACTS
 On April 23, 1983, herein petitioner spouses
Isaias and Marcelina Fabrigas (Spouses Fabrigas
or petitioners) and respondent San Francisco Del
Monte, Inc. (Del Monte) entered into an
agreement, denominated as Contract to Sell No.
2482-V, whereby the latter agreed to sell to
Spouses Fabrigas a parcel of residential land
situated in Barrio Almanza, Las Pias, Manila for
and in consideration of the amount of
P109,200.00. Said property, which is known as
Lot No. 9, Block No. 3 of Subdivision Plan
(LRC) Psd-50064, is covered by Transfer
Certificate of Title No. 4980 (161653) T-1083
registered in the name of respondent Del Monte.
The agreement stipulated that Spouses Fabrigas
shall pay P30,000.00 as downpayment and the
balance within ten (10) years in monthly
successive installments of P1,285.69.[2] Among
the clauses in the contract is an automatic
cancellation clause in case of default.
 After paying P30,000.00, Spouses Fabrigas took
possession of the property but failed to make any
installment payments on the balance of the
purchase price. Del Monte sent demand letters on
four occasions to remind Spouses Fabrigas to
satisfy their contractual obligation.[4] In
particular, Del Montes third letter dated
November 9, 1983 demanded the payment of
arrears in the amount of P8,999.00. Said notice
granted Spouses Fabrigas a fifteen-day grace
period within which to settle their accounts.
Petitioners failure to heed Del Montes demands
prompted the latter to send a final demand letter
dated December 7, 1983, granting Spouses
Fabrigas another grace period of fifteen days
within which to pay the overdue amount and
warned them that their failure to satisfy their
obligation would cause the rescission of the
contract and the forfeiture of the sums of money
already paid. Petitioners received Del Montes
final demand letter on December 23, 1983. Del
Monte considered Contract to Sell No. 2482-V
cancelled fifteen days thereafter, but did not
furnish petitioners any notice regarding its
cancellation.
 On November 6, 1984, petitioner Marcelina
Fabrigas (petitioner Marcelina) remitted the
amount of P13,000.00 to Del Monte.[6] On
January 12, 1985, petitioner Marcelina again
remitted the amount of P12,000.00.[7] A few
days thereafter, or on January 21, 1985, petitioner
Marcelina and Del Monte entered into another
agreement denominated as Contract to Sell No.
2491-V, covering the same property but under
restructured terms of payment. Under the second
contract, the parties agreed on a new purchase
price of P131,642.58, the amount of P26,328.52
as downpayment and the balance to be paid in
monthly installments of P2,984.60 each.[8]
 Between March 1985 and January 1986, Spouses
Fabrigas made irregular payments under Contract
to Sell No. 2491-V.
 Del Monte sent a demand letter dated February 3,
1986, informing petitioners of their overdue
account equivalent to nine (9) installments or a
total amount of P26,861.40. Del Monte required
petitioners to satisfy said amount immediately in
two subsequent letters dated March 5 and April 2,
1986.
 No other payments were made by petitioners
except the amount of P10,000.00 which
petitioners tendered sometime in October 1987
but which Del Monte refused to accept, the latter
claiming that the payment was intended for the
satisfaction of Contract to Sell No. 2482-V which
had already been previously cancelled. On March
24, 1988, Del Monte sent a letter demanding the
payment of accrued installments under Contract
to Sell No. 2491-V in the amount of P165,759.60
less P48,128.52, representing the payments made
under the restructured contract, or the net amount
of P117,631.08. Del Monte allowed petitioners a
grace period of thirty (30) days within which to
pay the amount asked to avoid rescission of the
contract. For failure to pay, Del Monte notified
petitioners on March 30, 1989 that Contract to
Sell No. 2482-V had been cancelled and
demanded that petitioners vacate the property.
 No other payments were made by petitioners
except the amount of P10,000.00 which
petitioners tendered sometime in October 1987
but which Del Monte refused to accept, the latter
claiming that the payment was intended for the
satisfaction of Contract to Sell No. 2482-V which
had already been previously cancelled. On March
24, 1988, Del Monte sent a letter demanding the
payment of accrued installments under Contract
 to Sell No. 2491-V in the amount of P165,759.60
less P48,128.52, representing the payments made
under the restructured contract, or the net amount
of P117,631.08. Del Monte allowed petitioners a
grace period of thirty (30) days within which to
pay the amount asked to avoid rescission of the
contract. For failure to pay, Del Monte notified
petitioners on March 30, 1989 that Contract to
Sell No. 2482-V had been cancelled and
demanded that petitioners vacate the
property.[12]
 On September 28, 1990, Del Monte instituted an
action for Recovery of Possession with Damages
against Spouses Fabrigas before the RTC, Branch
63 of Makati City.
ISSUE
Was Contract to Sell No. 2482-V extinguished through
rescission or was it novated by the subsequent Contract to
Sell No. 2491-V?
If Contract to Sell No. 2482-V was rescinded, should the
manner of rescission comply with the requirements of
Republic Act No. (R.A.) 6552?
If Contract to Sell No. 2482-V was subsequently novated
by Contract to Sell No. 2491-V, are petitioners liable for
breach under the subsequent agreement?
RULING
Petitioners defaulted in all monthly installments. They
may be credited only with the amount of P30,000.00 paid
upon the execution of Contract to Sell No. 2482-V, which
should be deemed equivalent to less than two (2) years
installments. Given the nature of the contract between
petitioners and Del Monte, the applicable legal provision
on the mode of cancellation of Contract to Sell No. 2482-
V is Section 4 and not Section 3 of R.A. 6552. Section 4
is applicable to instances where less than two years
installments were paid. It reads:
(SECTION 4. In case where less than two years of
installments were paid, the seller shall give the buyer a
grace period of not less than sixty days from the date the
installment became due.
If the buyer fails to pay the installments due at the
expiration of the grace period, the seller may cancel the
contract after thirty days from receipt by the buyer of the
notice of cancellation or the demand for rescission of the
contract by a notarial act.)
Thus, the cancellation of the contract under Section 4 is a
two-step process. First, the seller should extend the buyer
a grace period of at least sixty (60) days from the due date
of the installment. Second, at the end of the grace period,
the seller shall furnish the buyer with a notice of
cancellation or demand for rescission through a notarial
act, effective thirty (30) days from the buyers receipt
thereof. It is worth mentioning, of course, that a mere
notice or letter, short of a notarial act, would not suffice.
While the Court concedes that Del Monte had allowed
petitioners a grace period longer than the minimum sixty
(60)-day requirement under Section 4, it did not comply,
however, with the requirement of notice of cancellation or
a demand for rescission. Instead, Del Monte applied the
automatic rescission clause of the contract. Contrary,
however, to Del Montes position which the appellate
court sustained, the automatic cancellation clause is void
under Section 7[18] in relation to Section 4 of R.A. 6552.
Rescission, of course, is not the only mode of
extinguishing obligations. Ordinarily, obligations are also
extinguished by payment or performance, by the loss of
the thing due, by the condonation or remission of the debt,
by the confusion or merger of the rights of the creditor
and debtor, by compensation, or by novation.[20]
Novation, in its broad concept, may either be extinctive or
modificatory. It is extinctive when an old obligation is
terminated by the creation of a new obligation that takes
the place of the former. Four essential requisites: (1) a
previous valid obligation; (2) an agreement of all parties
concerned to a new contract; (3) the extinguishment of the
old obligation; and (4) the birth of a valid new obligation.
Notwithstanding the improper rescission, the facts of the
case show that Contract to Sell No. 2482-V was
subsequently novated by Contract to Sell No. 2491-V.
The execution of Contract to Sell No. 2491-V
accompanied an upward change in the contract price,
which constitutes a change in the object or principal
conditions of the contract. In entering into Contract to Sell
No. 2491-V, the parties were impelled by causes different
from those obtaining under Contract to Sell No. 2482-V.
On the part of petitioners, they agreed to the terms and
conditions of Contract to Sell No. 2491-V not only to
acquire ownership over the subject property but also to
avoid the consequences of their default under Contract
No. 2482-V. On Del Montes end, the upward change in
price was the consideration for entering into Contract to
Sell No. 2491-V.
The execution of Contract to Sell No. 2491-V created new
obligations in lieu of those under Contract to Sell No.
2482-V, which are already considered extinguished upon
the execution of the second contract. The two contracts do
not have independent existence for to hold otherwise
would present an absurd situation where the parties would
be liable under each contract having only one subject
matter.
The Court quotes with approval the following factual
observations of the trial court, which cannot be disturbed
in this case, to wit:
The Court notes that defendant, Marcelina Fabrigas,
although she had to sign contract No. 2491-V, to avoid
forfeiture of her downpayment, and her other monthly
amortizations, was entirely free to refuse to accept the
new contract. There was no clear case of intimidation or
threat on the part of plaintiff in offering the new contract
to her. At most, since she was of sufficient intelligence to
discern the agreement she is entering into, her signing of
Contract No. 2491-V is taken to be valid and binding. The
fact that she has paid monthly amortizations subsequent
to the execution of Contract to Sell No. 2491-V, is an
indication that she had recognized the validity of such
contract.
In sum, Contract to Sell No. 2491-V is valid and binding.
There is nothing to prevent respondent Del Monte from
enforcing its contractual stipulations and pursuing the
proper court action to hold petitioners liable for their
breach thereof.
7. COMMUNITIES CAGAYAN INC. VS. NANOL
FACTS:
 Respondent-spouses Arsenio and Angeles Nanol
entered into Contract to Sell with petitioner
Communities Cagayan, Inc., whereby the latter
agreed to sell to respondent-spouses a house and
Lots 17 and 19" located at Block 16, Camella
Homes Subdivision, Cagayan de Oro City,
 Respondent-spouses, however, did not avail of
petitioner’s inhouse financing due to its high
interest rates.
 Instead, they obtained a loan from Capitol
Development Bank, a sister company of
petitioner, using the property as collateral.
 To facilitate the loan, a simulated sale over the
property was executed by petitioner in favor of
respondent-spouses.
 Accordingly, titles were transferred in the names
of respondent-spouses and submitted to Capitol
Development Bank for loan processing.
Unfortunately, the bank collapsed and closed
before it could release the loan.
 Thus, on November 30, 1997, respondent-
spouses entered into another Contract to Sell with
petitioner over the same property for the same
price of P368,000.00. This time, respondent-
spouses availed of petitioner’s in-house financing
thus, undertaking to pay the loan over four years,
from 1997 to 2001.
 Sometime in 2000, respondent Arsenio
demolished the original house and constructed a
three-story house allegedly valued at P3.5
million, more or less.
 In July 2001, respondent Arsenio died, leaving
his wife, herein respondent Angeles, to pay for
the monthly amortizations.
 On September 10, 2003, petitioner sent
respondent-spouses a notarized Notice of
Delinquency and Cancellation of Contract to Sell
due to the latter’s failure to pay the monthly
amortizations.
 Petitioner filed a Complaint for Cancellation of
Title, Recovery of Possession, Reconveyance and
Damages against respondent-spouses.
 Petitioner alleged that the transfer of the titles in
the names of respondent-spouses was made only
in compliance with the requirements of Capitol
Development Bank and that respondent-spouses
failed to pay their monthly amortizations
beginning January 2000.
 Respondent Angeles averred that the Deed of
Absolute Sale is valid, and that petitioner is not
the proper party to file the complaint because
petitioner is different from Masterplan Properties,
Inc.
ISSUE:
WHETHER THE ACTION [OF] THE [RTC] BRANCH
IN ORDERING THE RECOVERY OF POSSESSION
BY PETITIONER ‘subject to the latter’s payment of their
total monthly installments and the value of the new house
minus the cost of the original house’ IS CONTRARY TO
LAW AND JURISPRUDENCE
RULING:
The petition is partly meritorious.
Considering that this case stemmed from a Contract to
Sell executed by the petitioner and the respondent-
spouses, we agree with petitioner that the Maceda Law,
which governs sales of real estate on installment, should
be applied.
In this connection, we deem it necessary to point out that,
under the Maceda Law, the actual cancellation of a
contract to sell takes place after 30 days from receipt by
the buyer of the notarized notice of cancellation, and upon
full payment of the cash surrender value to the buyer.
In other words, before a contract to sell can be validly and
effectively cancelled, the seller has (1) to send a notarized
notice of cancellation to the buyer and (2) to refund the
cash surrender value.
Thus, the buyer has the right to continue occupying the
property subject of the contract to sell, and may “still
reinstate the contract by updating the account during the
grace period and before the actual cancellation” of the
contract.
In this case, petitioner complied only with the first
condition by sending a notarized notice of cancellation to
the respondent-spouses. It failed, however, to refund the
cash surrender value to the respondent-spouses. Thus, the
Contract to Sell remains valid and subsisting and
supposedly, respondent-spouses have the right to
continue occupying the subject property.
Unfortunately, we cannot reverse the Decision of the RTC
directing respondent-spouses to vacate and turnover
possession of the subject property to petitioner because
respondent-spouses never appealed the order. The RTC
Decision as to respondent-spouses is therefore considered
final.
ARTICLE 1192: BOTH PARTIES GUILTY OF
VIOLATING THE OBLIGATION
1. CENTRAL BANK VS. CA